Liability of acts done after dissolution

Liability of acts done after dissolution

Section 45(1) states that notwithstanding the dissolution of the firm, the partners continues to be liable as such to third parties for any act done by any of them which would have been the act of the firm, if done before the dissolution, until public notice is given of the dissolution.

Public Notice – Section 72

A public notice means a notice in the official gazette in atleast one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business and if the firm is registered to the registrar of firm concerned.

– Therefore, merely publication of the notice in the local newspaper is not sufficient and such a notice does not absolve the outgoing partner from liability toward third person. (C. Assiamma v. State Bank of Mysore)

– However, no public notice of dissolution is to be given in following cases –

a) On the death of a partner

b) If partner is adjudicated insolvent

c) Retirement of a dormant partner

In Juggilal Kamlapat v. Sew Chand Bagree, a firm consisted of three partners A, B and C. Subsequently the firm was dissolved and A alone carried on the business. The appellants along with A wanted to make B and C also liable as they contented that public notice of dissolution has not been given. It was observed that when the appellants entered into the contract with A, the fact of B and C being the partner was not known to them and it came to be known only after the dispute in respect of contract has arisen. Thus, B and C were held not liable and were well protected under proviso to Section 45.

When there is a publication of public notice, the partnership is not liable on the principle of estoppel and a person cannot be held liable as a holding out partner.

Section 47 – Continuing authority for the purpose of winding up

After the dissolution of the firm, the authority of each partner to bind the firm, and other mutual rights and obligations of the partners continue notwithstanding the dissolution, as far as it may be necessary to wind up the affairs of the firm and to complete transaction begun but unfinished at the time of dissolution.

The proviso to Section 47 states that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent but if any person who after the adjudication represents himself or knowingly permits himself to be represented as a partner of the insolvent can be made liable under the doctrine of holding out.

In Motiram Chimanram v. Sarup Chand Prithi Raj, following observations has been made with respect to the authority of a partner during winding up. “With the dissolution of the firm the partnership is automatically dissolved but it still subsist merely for purpose of winding up its business and adjusting the rights of partner inter se, and for this purpose the authority of partners to bind the firm and all their mutual rights and obligations continue notwithstanding the dissolution. The power of partners extend so far as it is necessary to wind up the affairs of the firm and to complete transaction already begun it has been held that if a debt is owing to the firm, payment by the debtor to any one partner extinguishes the claim of all the partners and discharges the debtor, even though a particular partner or a third person is appointed to collect the debts owing to the firm and whether the debtor is aware of such appointment or not. Any partner of a dissolved firm can, therefore, recover payment of debt due to the firm.

In Butchart v. Dresser, A and B purchased some shares the payment for which has not been made and the firm was dissolved. A pledged those shares to borrow money from the firm bankers. B contended that pledging of share is not valid as firm was dissolved and bankers knew about it, it was held that pledging of shares was necessary to raise the fund for completing contract previously made by the firm and it was not beyond the authority of partner doing so and the other partner is bound by the transaction.

In Kedar Nath v. Firm Rekh Chand Dasv Ram, the question before the Allahabad Court was whether a decree obtained in favour of the firm, could be executed by any one of the partners, it was held that execution of decree was not a new transaction, it was a decree in favour of the firm and being an arrest of the firm, it was duty of partners to collect it and one of the partners of dissolved firm could surely perform that duly and has necessary authority to do so under Section 47 of IPA. His actions are binding on the firm.

Rights to have business wound up (Section 46)

On the dissolution of the firm every partner or his representative is entitled as against all other partners or their representative to have the property of the firm applied in payment of debts and liabilities of the firm and to have surplus distributed among the partners or their representatives according to their rights. The right contained in this section is also known as partner’s general lien over surplus assets of the firm. The linen is not over any specific property but it is only in form of claim against the surplus assets on realisation.

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